Forex trading platforms let you speculate on the difference between different foreign currencies through spot, CFDs, or financial spread betting. We have ranked, compared and reviewed some of the best forex trading platforms and brokers in the UK that are regulated by the FCA.

Best Forex Brokers Compared

Our picks for the best forex brokers are based on over 7,000 votes in our annual awards, our own experiences testing the accounts as well as an in-depth comparison of the features that make them stand out compared to alternatives.

City Index

City Index Forex Trading

Best overall forex broker 2022

City Index won “best forex broker” in our 2022 awards as they offer a huge amount for forex pairs (182) different accounts types including, spread betting and CFDs as well as Forex trading signals (SMART Signals) and post-trade analytics from Performance Analytics.

Forex Pairs:

182

Minimum Deposit:

£100

Account Types:

CFDs, Spread Betting, Forex

69% of retail investor accounts lose money when trading CFDs with this provider

Interactive Brokers Forex Trading

Best for on-exchange forex trading

Interactive Brokers is by far the most advanced forex broker we feature, if you need it to be. Interactive Brokers is one of the best forex trading platforms for advanced and experienced traders, but is also simple enough to be used by beginners who want to stick with one brokerage as they progress.

Forex Pairs:

100

Minimum Deposit:

£1

Account Types:

CFDs, Forex, DMA, Investing

60% of retail investor accounts lose money when trading CFDs with this provider

CMC Markets

CMC Markets Forex Trading

Best forex trading sentiment indicators

CMC Markets is suitable for forex traders who want tight pricing with robust technology, but also the options to trade peripheral markets should opportunities occur. CMC Markets won three awards in 2020 for its FX product, including our own Good Money Guide Best Forex Broker award, and it remains one of the best services out there.

Forex pairs:

338

Minimum Deposit:

£1

Account Types:

CFDs, Spread Betting, Forex

76% of retail investor accounts lose money when trading CFDs with this provider

Pepperstone

Pepperstone Forex Trading

Best for trading forex on MT4 & MT5

Pepperstone offers some of the tightest forex trading spreads in major FX pairs and minor and exotic crosses are are also available which you can either spread bet or trade CFDs on forex. Liquidity, pricing, and execution time on Pepperstone’s platform are good given its access to multiple Tier 1 banks.

Forex Pairs:

62

Minimum Deposit:

£1

Account Types:

CFDs, Spread Betting, Forex

74% of retail investor accounts lose money when trading CFDs with this provider

IG Forex Trading

Best for forex liquidity and trading tools

Due to its size IG offers some of the best liquidity for forex trading, meaning that smaller clients get tight pricing and high volume forex traders won’t find it hard to execute larger orders. IG’s forex trading offering is one of the best around with a  wide-ranging and competitive margin FX service across several dealing platforms which will comfortably meet most retail traders’ needs.

Forex Pairs:

51

Minimum Deposit:

£250

Account Types:

CFDs, Spread Betting, Forex, DMA, Investing

73% of retail investor accounts lose money when trading CFDs with this provider

Saxo Markets Forex Trading

Best for DMA forex trading

Saxo Markets is an excellent forex broker suitable for experienced traders who want a robust forex trading platform with an institutional pedigree. The ability to trade on exchange forex futures, or on exchange FX options gives Saxo Markets the edge over most forex brokers who just offer CFDs or spot FX

Forex Pairs:

84

Minimum Deposit:

£500

Account Types:

CFDs, Forex, DMA, Investing

70% of retail investor accounts lose money when trading CFDs with this provider

Markets.com

Markets.com Forex Trading

Good range of forex pairs

Markets.com is a good choice for forex trading on a simple-to-use trading platform with access to the major FX and some exotic pairs, most suitable to new traders who just want a click and trade platform that is well laid out and easy to use.

Forex Pairs:

20+

Minimum Deposit:

£100

Account Types:

CFDs, Spread Betting, Forex

77% of retail investor accounts lose money when trading CFDs with this provider

Spreadex Financials

Spreadex Forex Trading

Best for customer service

As with Spreadex’s other product offerings the FX proposition is competitive when viewed against their peers and the availability of contracts based on FX futures is a string to their bow that even many specialist FX brokers don’t offer.

Markets:

10,000

Minimum Deposit:

£1

Account Types:

CFDs, Spread Betting, Forex

69% of retail investor accounts lose money when trading CFDs with this provider

XTB

XTB Forex Trading

Good for low cost forex trading

Overall, as a Forex broker XTB provides good access to the currency markets, with tight pricing, and is most suitable for smaller traders who want to trade forex as part of an overall offering. 

Forex Pairs:

57

Minimum Deposit:

£1

Account Types:

CFDs, Spread Betting, Forex

77% of retail investor accounts lose money when trading CFDs with this provider

FXTM

FXTM Trading Platform

Good for forex only traders

FXTM is an online forex broker and CFD trading platform founded in 2011. FXTM has over 2 million registered users trading, which can trade 200 financial markets, (including 61 forex pairs) via the MT4 (Metatrader 4) of the FXTM mobile trading app.

Forex Pairs:

80

Minimum Deposit:

£1

Account Types:

CFDs, Forex

77% of retail investor accounts lose money when trading CFDs with this provider

eToro

eToro Forex Trading

Best for forex traders who want to copy others

There are two aspects to eToro’s forex trading offering that makes it stand out. Social trading where you can copy other traders trades and the ability to set your own leverage. This enables clients to take more or less risk when trading relative to their account size.

Forex Pairs:

41

Minimum Deposit:

$10

Account Types:

CFDs, Forex, Investments

77% of retail investor accounts lose money when trading CFDs with this provider

What is a forex broker?

A forex broker connects traders to the foreign exchange market so they can speculate on the price of currencies. Forex (foreign exchange) provide trading platforms, back office management, order routing and margin facilities to individuals, professionals and banks for forex trading.

What is Forex Trading?

Forex trading is the exchange or conversion of one currency into another. Whether that’s US dollars for Czech crowns or British pounds for Japanese yen. However, in today’s FX market, the rates of exchange between currencies are updated continuously and that means that traders can speculate on the changes in those rates or prices.

How do online forex trading platforms work?

In this interview, we cover what forex trading is, why and if you should trade forex, what forex pairs to trade, types of forex orders, what are the main risks of forex trading, trading forex around economic figures, technical analysis versus fundamental analysis as well as managing fx risk.

Choosing The Best Forex Broker

When choosing a forex broker, there are several key points to look out for, but most importantly, you need to choose a broker that’s the right fit for you. One that matches your trading knowledge, abilities and finances, and other requirements. For example, new traders are unlikely to benefit from opening an account with a broker that’s aimed at experienced algorithmic traders, and those traders won’t thrive in an environment designed for beginners.

The main things to consider when choosing a forex broker are:

Spreads & Commissions

The importance of starting with a forex broker with low fees

Forex brokers charge clients by either widening the spread or charging commission after you trade.

The benefits of using a broker that widens the spread are that you always know exactly what your entry and exit points are and don’t have to factor commission into your P&L. When brokers widen the spread they are including their commission in the bid/offer price that you trade at, so for example if a brokers commission is equivalent to 1 pip and the interbank buy price EURUSD is trading at 1.05123 you will be able to buy it at 1.05124 a 1 pip mark up. The disadvantage of using a broker that charges by widening the spread is that you have to trade at their prices and cannot work bids or offers in the market. City Index is an example of a broker that includes commission in the spread, and average spreads for EURUSD are 0.5, GBPUSD is 0.9 and USDJPY is 0.9 pips.

In our comparison table of forex speads we averaged out the top ten traded forex pairs and to see which forex trading platform was the cheapest. Pepperstone came out as having the overall cheapest spreads for forex trading with an average spread of 0.323 followed by XTB (0.446) and then Spreadex (0.451).

The other way forex trading platforms charge is to add a commission after you trade. When this happens the bid/offer price you can trade at will be better, but you will be charged a commission from your account. This could be for example 1 pip per trade, with a minimum commission fee. This type of trading is more suited to higher volume or larger traders who scalp the market for short-term profits, or work large orders over the available volume on the order book. Interactive Brokers for example caters to sophisticated forex traders and charges a commission of 0.0008% on forex trades.

Market Access

Trading on vanilla and exotic currency pairs

There are as many potential FX trading combinations as there are currencies in the world, however, not every single currency is tradable or liquid, and in developing markets in particular, exchange controls are often in operation, which limits the availability of that currency.

On the face of it, that shouldn’t affect the cash-settled, non-deliverable contracts traded in rolling spot FX and spread betting. However, in practice, it does because these contracts are priced based on the underlying deliverable markets.

Alongside the FX majors, we have what are referred to as crosses. Crosses are FX rates that don’t include either the US dollar or the euro. So, for example, GBPCHF, the British pound versus the Swiss franc, is a pair that’s composed of two currency majors, but not the dollar or the European single currency.

In the table below, we have set out some examples of tradable pairs and crosses but there are many more combinations available. However, margin FX brokers do not make prices in all FX pairs and crosses largely due to liquidity constraints and the cost of dealing, or the width spreads in the less liquid offerings.

The most you should expect to see on offer are between 50 or 60 combinations, although many brokers may have a more restrictive list than this. It is also worth noting that leverage ratios can be tighter in less liquid FX rates as well.

Forex brokers that currently offer the most forex pairs fore trading are:

  1. CMC Markets – 338
  2. Saxo Markets – 182
  3. IBKR – 100

Whilst it is important to note that having a wide range of forex pairs to trade is helpful if you scanning the entire market for price patterns (for example with City Index’s SMART Signals), the more exotic (or less common) a currency pair the harder it will be to trade.  Exotic currency pairs are generally harder to trade because there is less liquidity, meaning fewer buyers and sells, which results in wider prices (bid/offers) which means the market has to move more before you can lock in a profit on a trade.  There is also less news flow than on vanilla (more common) currency pairs, which is one of the major factors that move currency prices.

Margin & Leverage

Trade more, but beware of multiplied losses

Being able to trade forex on margin means that you can leverage your risk capital (money) to get more exposure to the market.

The main advantage is that you only need to put down a small deposit to open forex positions, for retail traders the FCA has stated that you need to put down a minimum of 3.33% of the value of a trade. So with brokers like City Index or IG, if you want to trade £100,000 you only need to put down £3,330 as margin (this is called initial margin). You will of course need to put down more if the trade more if the market moves against you to cover your losses (this is called variation margin).

The obvious disadvantage is that it is possible to lose money quickly and losses are multiplied significantly. If you are putting down a margin of 3.33% it means you are trading with 30 times leverage so if you have a position using £1,000 in margin on a £30,000 position and the market moves against you by 1% that means that you lose, £300, which is nearly 30% of your initial margin (deposit).

It is possible to lower your margin rates with a forex trading platform like eToro who let you set your own leverage if you want to reduce your exposure. It is also quite common for brokers like City Index to let you trade via an amount rather than on a per pip basis. It is possible to get higher leverage if you are trading through a professional trading account, but that is only for sophisticated and very experienced high net worth traders.

Regulation & Safety of Funds

All forex trading platforms in the UK must be regulated by the FCA

Forex trading is a highly regulated industry, for the benefit of traders and brokers. The UK regulator, the FCA (Financial Conduct Authority) ensures that forex brokers are adequately capitalised (have enough money) to provide forex trading services, that they treat their customers fairly and adhere to strict standards of compliance and anti-money laundering.

Never trade with a broker that is not FCA regulated.  You will see many adverts for offshore brokers offering forex trading online, as it is possible for offshore brokers to offer forex trading to UK residents. Being regulated in Cyprus also means that a broker can show that they are regulated in the UK and show up on the FCA register. So if you check the FCA website to make sure a broker is legit, they will show up. But, if they are not fully authorised and regulated by the FCA then client funds are not protected under the FSCS. The FSCS basically protects a certain amount of clients funds should a broker go into administration, see their website for more information here. If your broker is only based offshore you’ll have little hope of getting any money back.

On the Good Money Guide, we only feature forex trading platforms that are regulated by the FCA.

Account Types (ECP or STP)

If you want direct access to FX liquidity pools you may need an ECP or STP forex trading platform

An ECN (ECN stands for Electronic Communications Network) forex trading platform is an electronic communications network, and in FX trading, that network is made up of trading counterparties. These trading counterparties are also known as liquidity providers; they are the price-makers in the FX market. If you are offered an ECN or STP account, your broker is saying that your order will be routed into this network of competitive liquidity providers and price-makers.

It means that when you execute a CFD trade your order goes direct into the market. If you’re buying your broker is connecting you directly with a seller though an exchange.

Pepperstone offers ECN or STP (Straight Through Processing) access through its Razor account; this account offers tighter bid-offer spreads but charges a commission per deal on top of that.

ECP and STP matter if you need lightening fast execution and are working decent trade sizes. However, if you’re working really big orders the underlying market may not be liquid enough to fill the order so in really big order cases you may be better utilising a brokers internal liquidity to get filled.

Whether you need DMA FX access also depends on how you want to pay your broker. If you want an all-in price (i.e. no commission) then you can’t have direct market access. Because then your broker wouldn’t make any money. If you want clean prices and are happy for an additional commission charge to be added to the trade then you can get DMA.

The advantage of STP/ECN for clean prices is that you get much better pricing because you can work orders inside the bid and offer. However, most DMA brokers will have a minimum commission for traders so if you are a small trader, it won’t be cost-effective.

Unlike brokers who offer commissions built into the spread ECN and STP brokers make money by charging commission per lot, or per 1m or per share (depending on what you trade). You do need to factor this in when calculating your gross P&L versus your net P&L.

If want to trade through an ECN or STP broker you can compare DMA (direct market access) brokers here. But for the majority of private traders one of the major CFD brokers should be perfectly adequate. Plus one other thing to consider is that DMA brokers often cater to professional traders so unless your account size is above £50k you won’t be able to open an account.

If you’re a hedge fund looking for a prime broker for DMA, you can use our prime broker finder tool here.

Research & Analysis

Choosing a Forex broker that provides educational resources analysis and trading signals

FX trading and the terminology involved can seem quite daunting to new traders, so it’s important that you feel comfortable with a broker’s offering, and that things that you don’t understand are explained clearly to you. Whether that’s through a website Q&A section or suite videos on YouTube or a help desk. If you find that the broker isn’t able to explain things to you clearly and concisely, then maybe they are not right for you.

In my view, the better the quality for education and added value the better the trading platform. This is because forex brokers that want to form long-term relationships with their clients want them to be profitable traders and to do that traders need to be educated, guided and helped. Forex platforms are not allowed to provide direct advice to clients (see should you use an advisory broker) but they are able to provide educational material to help you become a better trader. After all, the more you trade the more the broker makes from you as a customer. In our forex platform reviews, we always highlight what a platform does to help traders perform. For example, IG has trading signals from Autochartist, City Index has SMART Signals and CMC Markets provides information on what their profitable clients are trading so you can see where the “smart money” is going.

Mobile Trading & Apps

Forex trading apps let you trade the world’s currency market from anywhere

Forex brokers often provide several versions of their trading apps and have various different platforms on offer. We have ranked the best forex trading apps, by the aggregated number of reviews and given them an average score across various review platforms:

  1. IG – 4.5
  2. Pepperstone – 4.45
  3. Spreadex – 4.35
  4. Saxo Markets – 4.25
  5. CMC Markets – 3.6
  6. City Index – 3.5
  7. Markets.com – 3.45

For more information on mobile forex trading see our dedicated trading app comparison and review page.

Scalping

Choosing a forex trading platform that allows scalping

Scalping the forex markets is a very popular form of trading as it involves trading in and out of positions very quicky trading to make short-term profits on very small price movements.

Scalping is a well-established FX trading strategy. However, these days, it’s becoming increasingly automated and time-sensitive. So, whilst retail traders can pursue a scalping strategy, they will probably want to find a decent and reliable trading bot or expert advisor to help them with both spotting opportunities and trade execution.

To be effective, scalpers need to have low network latency and maximum platform uptime, and they may wish to consider using a VPS service, which creates a virtual trading platform on a server that is co-located in the same data centre with the broker’s own servers. That service will usually come at a cost, or with minimum volume requirements attached.

Some forex platforms ban scalpers because they find it difficult to hedge smaller positions and some traders take advantage

The most effective way to scale the forex markets is by using an ECN or STP broker, however, you will want to ensure that you know exactly what your cost per trade is because one of the most important facets of scalping is being able to cut or scratch non-performing trades for the lowest possible costs, and of course to make profits on those trades that you don’t cut. But to book a net profit, your trading P&L will need to exceed your trading costs.

In our guide to scalping we ranked these as the best brokers for scalping including these brokers which allow scalping:

Retail or Professional Forex Trading

What type of trader are you small or professional?

Trading with smaller deposits is popular among new traders who are reluctant or unable to commit a large amount of capital to FX trading. Over time, they may increase their trading deposit as they become more familiar with the way FX trading works and more confident in their ability to make a return on their trading capital.

Established names like IG Group score well as a broker for those that are new to trading or have a small deposit. However, there are alternatives to consider as well. Both ETX Capital and Spreadex can accommodate smaller deposits and newbies. Both of these businesses have straightforward intuitive trading platforms. ETX has a wealth of educational videos on offer and Spreadex, of course, offers both FX trading and spread betting on FX.

Here are some of the best forex trading platforms ranked by what the broker’s minimum deposit is:

  1. Markets.com – £5
  2. Capital.com £20
  3. City Index – £50
  4. Spreadex – £100
  5. Pepperstone – £100
  6. CMC Markets – £100
  7. IG – £250
  8. Saxo Markets – £500

For high net worth individuals who are likely to have deposits over the £85,000 FSCS limit, it’s important to look for a provider with a decent balance sheet and a good track record. For example, IG Group has a market cap of £2.79 billion and has been in business for more than 40 years. Fineco is a fully-fledged and listed Italian bank with a market cap of €9.0 billion. Whilst privately held Saxo Bank Group had a total balance sheet equity of DKK 7.082 billion in 2019 and is 50% owned by Chinese conglomerate Geely Holdings.

IG Group was voted the winner in the Best Professional Trading Account category in our 2020 awards, whilst Fineco won the award for customer service and Saxo Capital Markets won Best DMA Broker.

Brokers that offer professional clients a dedicated service include IG Group, Saxo Capital Markets, City Index and ETX Capital

Professional traders need to meet strict criteria around experience, knowledge of volumes traded and financial wherewithal. If you do qualify as a professional trader, you will enjoy higher rates of leverage and access to a wider range of products than retail traders. Professional traders are the most profitable group for FX brokers and they tend to offer those clients additional perks as well.

The forex brokers that have won “best professional trading account” for their trading platform in our awards for the past four years have been:

  • 2022: Saxo Markets
  • 2021: Saxo Markets
  • 2020: IG
  • 2019: Saxo Markets
  • 2018: Saxo Markets

Different ways to trade forex

Which way do you want to trade Forex

There are three different types of forex trading:

  • Spot – where you buy and sell physical currency in full or on margin
  • CFD – “contracts for difference” is when you technically enter into a contract based on the opening and closing price of a trade. However, in reality it is similar to Spot
  • Spread Betting – is placing a bet for an amount per pip a currency pair moves
  • Futures – on exchange futures contracts are for set amounts and for certain dates in the futures, usually for more experienced traders
  • Options – you can either trade on exchange or OTC currency options, through a options trading platform

Popular Currency Pairs On Forex Trading Platforms

The most popular currency pairs for forex trading are the G10 forex crosses as they are the most liquid with the most news flow.  Of those the top three traded forex pairs are: 

  1. EURUSD
  2. GBPUSD
  3. USDJPY

EURUSD

For this ranking of the best forex trading platforms to trade EURUSD we have ranked by which forex broker has the cheapest trading costs. For a more in-depth comparison of forex brokers that offer EURUSD trading view our EURUSD forex trading platform comparison,

  1. Pepperstone – 0.13
  2. City Index – 0.5
  3. IG – 0.6
  4. Saxo Markets – 0.6
  5. Spreadex – 0.6
  6. CMC Markets – 0.7

GBPUSD

For this ranking of the best forex trading platforms to trade GBPUSD we have ranked by which forex broker has the cheapest trading costs. For a more in-depth comparison of forex brokers that offer GBPUSD trading view our GBPUSD forex trading platform comparison,

  1. Pepperstone – 0.44
  2. Saxo Markets – 0.7
  3. IG – 0.9
  4. CMC Markets – 0.9
  5. Spreadex – 0.9
  6. City Index – 0.9

USDJPY

For this ranking of the best forex trading platforms to trade USDJPY we have ranked by which forex broker has the cheapest trading costs. For a more in-depth comparison of forex brokers that offer USDJPY trading view our USDJPY forex trading platform comparison,

  1. Pepperstone – 0.25
  2. Saxo Markets – 0.6
  3. City Index – 0.6
  4. IG – 0.7
  5. CMC Markets – 0.7
  6. Spreadex – 0.7

 

Forex Broker FAQs

Can you make money trading forex?

Yes, it’s possible to make money trading forex. As with any financial market if you call the market right you can close profitable positions. However, speculating on the currency markets is very high risk and many traders do not make money.

How do forex brokers and trading platforms make money?

Forex brokers make money in two main ways. These are through commissions, spreads and other commission charges, and their hedging or B-book activities. Each time a client trades with a broker, they pay the bid-offer spread – the difference between the price that you can sell an instrument at and the price at which you can buy that instrument.

You cross this spread when you open a trade and cross it again when you close it. Spreads in FX trading are usually pretty small or tight. However, FX trading is leveraged and traders frequently move in and out of positions, so those spread charges can soon mount up.

On top of, and sometimes instead of the bid-offer, spread brokers will charge a commission per deal. This could be a flat fee or a small percentage of the total value of the trade. Once again, the broker is relying on trading volume to make their money for them.

The other way that brokers make money is through their hedging activities. FX brokers can choose how they route your orders. For example, they may choose not to route your order to the market and their liquidity providers. They will match their pricing but will execute against their B or principle book instead. That means they are taking the other side of the client’s trade.

In this situation, the broker is opposing their client and makes money if their client loses. However, the broker loses money if the client makes money on the trade.

In the past, this has created concerns about conflicts of interest. These days, such hedging activities are usually automated, with brokers that take on client risk, doing so only up to a certain monetary limit, before they offset their positions in the market.

It’s always worth having a conversation with your broker about their execution policy and how and where their orders are executed and routed, and they should be happy to discuss this with you.

Can you spread bet on a forex trading platform?

As an alternative to trading margin for forex individuals, UK taxpayers can spread bet on FX rates. Spread betting, as the name suggests, are wagers on the performance of an instrument or market rather than a trade, and though the methodology and pricing of these two types of transactions can look very similar, the tax treatment of any profits made in them is very different.

Profits made from trading are subject to UK capital gains tax, whilst under current legislation, profits generated through spread betting are tax-free. By the same token, losses made in trading can be offset against capital gains made elsewhere, whilst spread betting losses cannot.

For more information forex trading tax, read our Q&A: Do you have to pay tax on forex trading?

The tax treatment is the principal difference between the two forms of speculation, however, some spread bets may be priced in a similar way to futures contracts; that is with the cost of carry or financing included in the quote at the outset, rather than being charged daily, as is the case in forex trade. Spread bets are also likely to have a fixed expiry, whether that’s daily, weekly or quarterly. While FX trades, which are effectively CFD trades, have no fixed expiry unless you are trading a currency future or option, rather than the rolling spot contract.

The mechanics of spread betting on FX are very similar to those of trading FX. Of course, you will need to open a spread betting account to spread bet, rather than a trading account. You will also want to familiarise yourself with the bets that spread betting providers offer and the contract lifetimes, and the way that they are priced that could be very different for say a rolling daily bet, a weekly bet or indeed a monthly or quarterly bet.

One obvious thing to try to do is to match the contract you are going to be betting on with your time horizons, and style of speculation daily bets won’t be much use to you if you have a two- or three-week-time horizon. Equally, a quarterly contract may not be your best choice if you are an intraday bettor.

What is forex day trading?

The phrase Day Trading refers to a style of trading that carries no overnight positions; rather, day traders enter and exit a trade within the same business day. This serves two purposes: firstly, it eliminates overnight risk – that’s price changes and news flow that can happen while you are asleep – and secondly, it means that traders don’t incur any overnight financing charges or rollover swaps because their business is traded intraday.

Why is forex day trading so popular?

Day trading is a very popular trading style but of course, it does limit a trader’s time horizons and tends to push them towards short-term swing and trend following trading strategies.

An FX day trader based in Europe might start their day by looking at what’s happened to the major FX pairs in the Asian session and for price movements that look likely to continue in European trading or indeed those that look like they’re running out of steam.

What is an example of day trading forex?

What might a day trade look like? Let’s imagine that the dollar-yen has changed overnight and the yen has continued to strengthen against the US dollar. Headlines in the European and overnight press suggest US rates will remain lower for longer and a dovish Fed Governor and board member is speaking later that day. In these circumstances, our imaginary day trader might well sell dollar-yen expecting the rate to fall further.

In the late afternoon, towards the end of the UK business day, the Fed board member speaks and intimates that interest rates in the US will stay lower for longer and the dollar-yen FX rates fall, allowing our day trader to close their short position for a profit.

What are the best currency pairs to trade?

The most popular currency pairs are the FX majors, so-called because they included the currency of the world’s major economies. Eurodollar is the most widely traded FX pair. That’s followed by dollar-yen and cable or the GBP USD. The Aussie dollar versus the USD is also widely traded as it reflects sentiment around global trade.

The Hong Kong dollar and Chinese yuan are becoming more important as the Chinese economy becomes more influential around the globe. The South African rand and Brazilian real against the US dollar are two other very popular emerging-market pairs.

In terms of what’s best for trading, it will be the currency pair or pairs that are active in your time zone or at the times when you can trade them, and the pairs that you feel you understand. What we mean by that is that you have a handle on what the drivers for price changes in that pair or pairs are. Some FX pairs speak to a trader and some don’t.

This is most obvious when you look at charts of currency pairs; some of those charts will speak volumes about the trading opportunities, whilst others will leave you cold. If you are a fundamental trader, then you are likely to trade pairs whose economic releases are published when you are up and about and in front of your screen, rather than those that have releases when you are fast asleep.

For more information read our guide to the top ten forex pairs for trading

Can you trade forex through an options broker?

Yes, you can trade forex through an options broker. There are exchange-traded and listed currency options on the CME, which offers 24 different contracts. Options are a form of derivative that confers the right but not the obligation on a buyer of the contract, to be able to buy or sell a predetermined amount of the underlying instrument that the options contract is over.

Sellers or writers of options contracts are obligated, however, and must buy or sell the specified amount of the underlying instrument if they are called upon to do so during the lifetime of the contract.

Options trading allows a trader to speculate on a potential outcome over a fixed time with a small stake. Options contracts are traded in series, for example, on a monthly rotation, and options are offered over a range of levels above and below the current price, which are known as strike prices.

Options also come in two different flavours: Call options, which confer the right to buy, and Put options, which confer the right to sell.

So if we have a rotation or series of 12 monthly contracts with 20 strike prices in each month, and both puts and calls available, we have 12*20*2 potential trade combinations. That’s 480 opportunities, and that is just what’s available for one instrument. That compares very favourably with the binary choice of buying or selling in a standard FX trade.

Options have a finite life and to some extent, the valuation or price of an option over its lifetime is predictable in advance. Largely because the time value of options decays at a known rate and with a particular profile. The time value component of an option erodes more quickly the closer we get to the expiry date, and once the time value of the option has been eroded, the option contact only has an intrinsic value if it is in the money.

That is, the strike price of the option is advantageous compared to the current price of the instrument that the option is over. Such that you can buy the underlying more cheaply than the current offer price, via the option, in the case of a call. Or sell the underlying at a higher price than the current bid in the case of a put option. The more in the money an option is, then the higher its value.

Option prices are driven by other factors, including interest rates, volatility, or the propensity for rapid price change in the underlying instruments, and they are sensitive to changes in key ratios used in pricing models. Those sensitivities are known as the Greeks, as they are named after letters in the Greek alphabet.

As well as exchange-traded options or CFDs over the same, there are OTC options on FX and among those are exotic options. Options are considered complex products and exotic options even more so, and as such, these are not products for inexperienced traders. Only those with a clear understanding of the pricing mechanisms and risk-reward profiles of options should consider trading them.

What is slippage on forex trading platforms and how do you avoid it?

Slippage is the difference in price between a take profit or stop order being triggered and the execution of the same. It can occur in fast or illiquid markets and comes about because stop and take profit orders are executed at the next available price in the market after they are triggered and FX prices can move significantly, even within a fraction of a second.

The only way to eliminate slippage is to trade with guaranteed stop losses, however, they usually have a cost attached to them and are not as flexible as a standard stop-loss order. To reduce potential exposure to slippage, it’s best to trade in the most liquid portions of the market in terms of both choice of instrument and times of the trading day.

We can also use limit orders to fix the price at which we are prepared to execute. Though of course, we have to weigh up when to use that order type and when it’s best to close a position, regardless of price.

What is the best time of day to trade forex?

The best times of the day to trade in FX are the points where the main sessions overlap and business moves from one region to another. This happens first thing in the morning GMT, as Asian markets wind down for the day as London opens for business, and then again mid-afternoon London time, as US markets become active and London trading heads towards the close. The handover from the US to Asian FX centres later in the day is probably the least liquid of the three overlaps.

What is hedging when forex trading?

In FX trading, hedging can mean two things. Firstly, it can relate to the process of hedging or sterilizing a position by opening an equal and opposite trade to an open position. A trader might put on a hedge such as this if, for example, he or she wanted to retain a position overnight or over a weekend without experiencing any change in P&L, positive or negative.

Imagine a trader is long one lot of GBPUSD, it’s nicely on side and they decide to hold onto the position rather than close it, as they will be travelling and will be unable to monitor the position. To hedge that trade, they sell one lot of GBPUSD as a new opening position, not to close the existing trade.

They now have two positions open but their P&L is neutral from the time that they opened the short trade. The trader can close one or both of their positions in GBPUSD as and when they can trade again.

We can also hedge FX exposure of other positions. For example, if a trader has a portfolio of US equities in US dollars but their base or home currency is GBP, then they are long the US dollar and short the British pound by default and are exposed to underlying currency risk.

However, the investor could choose to hedge that currency risk with an FX trade, in case a purchase of GBPUSD with a notional value equivalent to the value of their underlying portfolio of US shares.

It’s also possible to hedge an FX position with a position in another FX pair or cross that is negatively correlated to the original position. Under a negative correlation, a change in the value of position A is offset by a change in the opposite direction in the value of position B. However, FX correlations are variable rather than static, so such hedges need to be well thought out and/or relatively short term.

Are there any fee-free forex trading platforms?

There is no such thing as a free lunch they say, and that rings true in trading. Brokers have costs and they need to meet those costs somehow, whether that is through the spread and/or commissions or trading against their clients via B-book. Where brokerage services are offered free, for example, in trading US equities, the broker is paid by a market maker or high-frequency trader for their client’s order flow. The adage that if something looks too good to be true then it probably is, remains good advice.

Why is forex trading so popular?

As a Trading Market, it is the most active in the world because:

  1. The market is almost always open – Global financial markets open at different times across different time zones; Forex trading operates 5 days a week. Key financial cities around the world, like London, Tokyo, Singapore, Zurich, Frankfurt and New York, all trade forex.
  2. There is a genuine need to exchange currencies – Big companies move money internationally frequently, as do travellers, governments and more. It is because of this need that the forex market is so active globally and so dynamic.
  3. Floating exchange rates have become more common – Rather than global currencies being valued against gold, currencies commonly have “floating exchange rates”. This means their values can fluctuate, meaning forex trading can offer traders multiple ways to profit.
  4. Trading FX is relatively easy to start – New traders can pick up the basics of FX trading fairly quickly. There is a plethora of educational material available online from both brokers and independent trainers. New traders can start with a small trading deposit and can learn some simple technical analysis and trading strategies and have a chance of making money. Despite that, many new traders still fail to follow the rules they learn or to impose the monetary discipline needed to succeed. Whilst learning to trade forex is easy, learning to successfully profit from it is hard, and many new traders lose money.
  5. FX trading is conducted online and is self-determined – Forex traders use dedicated software to place trades. They can do this from their desktop PC or a mobile device such as a tablet or mobile phone. In market terminology, they push their own buttons, meaning that there is no intervention from a broker or intermediary. Instead, forex traders trade with and against other forex traders using what’s known as DMA or Direct Market Access.

Here’s more information and our ten step guide on how to trade forex

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